Sovereign, Relational Bury the Hatchet

The brutal war of words between Sovereign Bancorp ( SOV) and activist shareholder Relational Investors fizzled out when the Philadelphia thrift agreed to add two independent directors.

According to Sovereign, one of the directors will be Relational principal Ralph Whitworth. The other will be chosen by the bank from a list provided by Whitworth's firm. In return, Relational agreed to vote its shares in favor of Sovereign's board nominees through 2012.

The agreement will result in both sides dropping lawsuits they filed against the other, while Relational will withdraw its regulatory objections to the acquisition by Sovereign of Independence Community Bank Corp. ( ICBC).

In October, Sovereign said it would sell 19.8% of itself to Spain's Santander ( STD) for $2.4 billion and buy Independence for $3.6 billion. That transaction sparked an acrimonious proxy battle between Relational and the bank.

Relational, which at last count had 8% of Sovereign's shares, at one point wanted the company's board replaced on grounds it had designed the stake sale to Santander so as to circumvent a threshold that would have required shareholder approval, among other things.

In Thursday's press release, Sovereign said it would retain a firm to study its policies on related party transactions, disclosure and other corporate governance matters.

Relational's Whitworth said: "I am pleased to achieve our original objective of obtaining board representation, and I look forward to working constructively with the board and Sovereign's management team to build share value for the future," Mr. Whitworth said.